Many big banks in New Jersey have lent out more money than the deposits that customers have given them. Some are looking to bring their loan-to-deposit ratios by potentially merging with other banks or offering customers more incentives to deposit money with them.
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Since the financial crisis, banks across the United States have faced an odd dilemma: more money flowing in as deposits, less money flowing out as loans.

But for some of New Jersey’s biggest banks, the opposite appears to be the case, according to one key metric.

Banks such as Investors Bank in Short Hills, Oritani Bank in Washington Township and Valley National Bank in Wayne have loaned out more money than they've taken in as deposits. Their loan-to-deposit ratios exceed 100 percent.

By comparison, the national average has sunk in recent years to around 85 percent. JPMorgan Chase, the nation’s largest bank by assets, saw its loan-to-deposit ratio fall to 57 percent during its most recent quarter.

The high ratios in New Jersey and elsewhere in the Northeast reflect the region’s legacy of savings and loan institutions, analysts and bankers say. These banks tend to hold 30-year mortgages on their books and typically will use long-term borrowings, not just deposits, to fund such loans, they say.

But while a high ratio on its own isn’t considered unsafe, it could put a strain on banks, particularly when interest rates start to rise, analysts say.

"If and when short-term interest rates go up, deposits sitting in accounts now could go out," said Matthew Kelley, an analyst with investment bank Sterne Agee. "When you have a better alternative for your money, people could change their behavior."

Some banks are feeling the pressure to do something about their loan-to-deposit ratios. It’s leading them to take a number of steps to encourage more deposits, from sweetening interest rates paid on some accounts to pursuing mergers with banks flush with customer cash.

"We’re definitely seeing a change in tone," Kelley said.

As an example, Susquehanna Bank, a Lancaster, Pa.-based lender with branches throughout South Jersey, told analysts on a recent conference call that it is planning to slow down some of its loan production and ramp up its deposit-taking this year in a bid bring to its loan-to-deposit rate below 100 percent. Among other things, officials at the bank said they will focus on "deposit-rich" opportunities that would spring from small businesses and commercial and industrial borrowers.

Some New Jersey banks are looking at ways to beef up customer deposits.Star-Ledger file photo

Kevin Lynch, president and CEO of Oritani Bank, which has $2.3 billion in loans, said he is focused on bringing down his bank’s loan-to-deposit rate of 162 percent, even though focusing on loans has netted it profits in recent years.

"In this environment, it’s better to be an asset generator than a deposit generator," he said.

He said the Bergen County bank is looking to grow its core deposits by 15 percent this year. He also said it is looking at potential acquisitions of banks with large pools of deposits.

"It’s on our list of things to do," he said.

One lender that has already gone down that route is ConnectOne Bank. In January, the Englewood Cliffs-based bank announced plans to merge with Center Bancorp, the parent company of Union Center National Bank, which has branches throughout north and central New Jersey.

Like Oritani’s Lynch, Frank Sorrentino, chairman and chief executive of ConnectOne, said the current environment prompted his bank to push its loan-to-deposit rate up.

"To us, we felt that a loan-to-deposit north of 100 percent was the best income-producing (choice) for our balance sheet," he said. As of its most recent quarter, its rate stood at 118 percent, up from 109 percent a year earlier.

But combining with Center — which has $961 million in loans to $1.3 billion in deposits — would immediately change that metric to 91 percent, according to an investor presentation the banks released. "This merger takes care of any liquidity mismatch with our portfolio," Sorrentino said.

Banks say they haven’t felt pressure from their regulators to rein in their loan-to-deposit rates. But to Frank Schiraldi, an analyst with Sandler O’Neill, regulators likely will start examining questions of bank liquidity after having spent much of recent years focused on asset quality and capital levels.

"It’s a good sign that banks are looking at this now. They do have some time before this becomes an issue," he said.

Don Musso, president of Finpro, a consulting firm in Bernards Township, said his firm has been helping banks study their deposit base with the aim of giving them more loyal, long-term customers.

The outcome of these studies could result in perks extended to customers, such as slightly better interest rates for those who bundle a checking account with their savings account.

Corporate checking accounts are most attractive to banks, Musso said, and community banks in New Jersey are offering free checking and other services to these accounts as part of their deposit strategy.

Some bank officials say while they are focused on building their deposit base, they aren’t overly concerned with their loan-to-deposit ratios.

For Gerald Lipkin, chairman and chief executive officer of Valley National Bank, he said his bank also is offering competitive rates on long-term certificates of deposit. But he’s confident Valley’s 101 percent loan-to-deposit ratio is a good place to be.

"We always prefer to fund off our deposit base, but you have to balance that" with other lower-cost funding measures, he said.

"For the most part, if your liquidity is good, your loan-to-deposit ratio shouldn’t be of concern," said Domenick Cama, chief operating officer of Investors Bank, which had $10.8 billion on deposit and a loan-to-deposit ratio of 121 percent at the end of last year. He said that rate is well within the bank’s comfort range.

Still, he said, Investors has been looking to get customers to park more cash with it. For example, the bank has run a couple of promotions lately, including one for a money market fund with a 1.05 percent interest rate, or well above the prevailing rates. On a recent conference call with analysts, Cama said that promotion generated some $550 million to $600 million in deposits.

"There’s no question that deposits are the lifeblood of any financial institution," Cama said. "They really drive the franchise value of any bank."